Chapter 14

What would happen to the company's dollar-based operating costs if the euro decreased in value relative to the dollar?

• The company would experience an increase in dollar-based operating costs.

• There is not enough information provided to determine what the result would be.

• The company would experience a decrease in dollar-based operating costs.

• The company would experience no change in dollar-based operating costs.

What would happen to the company's dollar-based revenues if the yen decreased in value relative to the Canadian dollar?

• The company would experience an increase in dollar-based revenues.

• There is not enough information provided to determine what the result would be.

• The company would experience no change in dollar-based revenues.

• The company would experience a decrease in dollar-based revenues.

If the SDR-to-USD exchange rate was decreasing over time, what would this indicate?

• It means the U.S. dollar is appreciating over time in world currency markets.

• It means the U.S. dollar remains unchanged in world currency markets.

• it means nothing because the USD and SDR are not connected in any way.

• It means that the U.S. dollar is depreciating over time in world currency markets.

What is it called when a buyer purchases currency anticipating that the value of that currency will increase over time?

• hedging

• long position

• short position

• speculating

If it sells 100,000 units at 1,000 euros each, the revenues it will later receive will equal €1 million. If the current spot EUR-to-USD exchange rate increases from 1.50 to 1.70 between the time of sale and time of payment, what happens to the revenues of the U.S. exporting firm?

• Revenues will increase.

• Revenues will decrease.

• Revenues are not impacted by changes in currency rates.

• Revenues will remain unchanged.

All of the following are characteristics of forward contracts EXCEPT for which example?

• can be customized to meet the hedging needs of the buyer

• have a higher level of liquidity risk

• are not marked-to-market daily

• less standardized

What payment methods would offer ABC Company the safest option in terms of risk?

• payment in advance

• banker's acceptance

• open account

• commercial letter of credit

Which international bond type had the largest trading volume in 2021?

• euro-denominated bonds

• pound-denominated bonds

• yen-denominated bonds

• dollar-denominated bonds

What is likely to be the best source for the financing?

• stocks

• bonds

• debentures

• certificates of deposit (CDs)

Should the U.S. firm proceed with the upgrade?

• Unknown. There is not enough information to answer this question.

• No. The firm did not convert the cash flows to dollars before calculating present value.

• No. A positive NPV is not a good indicator of profitability.

• Yes. The projected NPV of 2,125,000 euros is positive, indicating profitability.